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A perpetual clause (kettingbeding) is a contract term in which a party undertakes to impose an obligation on whoever acquires an asset from it, and to have that acquirer pass the obligation on in turn. A later acquirer is bound only if it accepts the clause. By contrast, a qualitative obligation (Article 6:252 Dutch Civil Code) binds later acquirers of a registered asset automatically, once it has been laid down in a notarial deed and registered in the public registers (Article 6:252(2)).
A perpetual clause usually obliges the successor to tolerate something or to refrain from doing something, such as not competing or not using a property for a certain purpose. Sometimes it is an obligation to do something, such as maintaining a facility.
Such provisions are particularly common in property transactions and company takeovers. Below, our contract lawyer in the Netherlands explains how the clause works, how it differs from a qualitative obligation and whether a perpetual contract is enforceable. Our team also advises on Dutch Distribution Law.
Are you bound by a perpetual clause?
The legal successor is not automatically bound by a regular perpetual clause under Dutch law. A contract binds its parties, and the acquirer was not a party to the original contract. The re-selling party must therefore impose the obligation on the new acquirer in the sale contract, and must also oblige that acquirer to pass it on to the next one. The acquirer is bound once it accepts the clause in its own contract.
In practice the clause is often drafted as a third-party clause (derdenbeding) in favour of the original party. Once that party accepts it, it is treated as a party to the later contract and can enforce the obligation directly against the acquirer (Article 6:253(1) and 6:254(1) Dutch Civil Code).
A penalty clause (boetebeding) is often added so that each party in the chain actually passes the clause on (Article 6:91 Dutch Civil Code). If a seller fails to impose the obligation on its buyer, the original party can in principle only hold that seller liable for breach of contract; a buyer who never accepted the clause is not bound by it. The creditor cannot claim both the penalty and performance of the obligation to which the penalty is attached (Article 6:92(1)). At the debtor’s request, the court can reduce the penalty if fairness clearly requires this (“indien de billijkheid dit klaarblijkelijk eist“), but not below the statutory damages (Article 6:94(1)).
How is a perpetual clause interpreted?
Because perpetual clauses can remain in effect for years and affect many later parties, draft them as clearly as possible. A Dutch court will not interpret the clause on the basis of its wording alone. The test is what meaning the parties could reasonably give to the clause in the circumstances and what they could reasonably expect from each other; the parties’ background and legal knowledge can also matter (Supreme Court 13 March 1981, ECLI:NL:HR:1981:AG4158, Haviltex).
How does a perpetual clause differ from a qualitative obligation?
A qualitative obligation (kwalitatieve verplichting) is a different instrument. Under Article 6:252 Dutch Civil Code, parties can agree that an obligation to tolerate something or to refrain from doing something with respect to a registered asset (registergoed), such as real estate, passes automatically to everyone who later acquires the asset. The parties can also agree that persons who obtain a right to use the asset from the owner, such as tenants, will be bound.
The requirements are strict. The agreement must be laid down in a notarial deed, followed by registration in the public registers (Article 6:252(2)). An obligation to do something cannot be a qualitative obligation, and neither can a restriction on the owner’s power to sell or encumber the asset (Article 6:252(1) and (5)). Even after registration, the obligation does not bind persons who acquired a right to or use of the asset before registration (Article 6:252(3)(a)). Property law also offers an easement (erfdienstbaarheid): a burden on one immovable property for the benefit of another, which can also include an obligation to maintain (Articles 5:70 and 5:71 Dutch Civil Code). For anything outside these instruments, a perpetual clause is the usual alternative. Because the instruments have different effects, do not confuse them.
Is a perpetual contract enforceable under Dutch law?
Dutch contract law has no general rule that makes a contract of unlimited duration invalid. The question is rather whether, and on what terms, it can be terminated. That depends on the contract and on the applicable statutory provisions. If neither provides for termination, a contract for an indefinite period can in principle be terminated by notice. Reasonableness and fairness may require a sufficiently serious ground, a notice period or an offer of compensation, depending on the nature and content of the contract and the circumstances (Supreme Court 28 October 2011, ECLI:NL:HR:2011:BQ9854, para. 3.5.1).
The parties can also intend a contract for an indefinite period to be non-terminable. The other party can then, in certain circumstances, rely on Article 6:248(2) (a contractual rule does not apply to the extent this would be unacceptable by standards of reasonableness and fairness) or on Article 6:258 Dutch Civil Code (unforeseen circumstances) (Supreme Court 2 February 2018, ECLI:NL:HR:2018:141, paras. 3.6.2 and 3.6.5). For Article 6:258, a person to whom a contractual right or obligation has passed is treated as a party (Article 6:258(3)). These tools can also limit a perpetual clause that has become outdated.
Frequently asked questions about perpetual clauses under Dutch law
What does “perpetual” mean in a contract?
“Perpetual” means without an end date. A perpetual agreement continues until it is terminated. On this page, “perpetual clause” is used for the Dutch kettingbeding: a clause that each acquirer of an asset must pass on to the next acquirer.
What is a perpetual obligation?
A perpetual obligation is an obligation that is meant to bind not only the original party but also its successors. Under Dutch law, a contractual obligation passes automatically to a later acquirer of an asset if it is a qualitative obligation with respect to a registered asset (Article 6:252 Dutch Civil Code). Otherwise, it is usually passed on by contract through a perpetual clause, unless a property right such as an easement is used.
Is a new owner bound by a perpetual clause?
Only if the new owner has accepted the clause, usually in the purchase contract or the notarial deed of transfer. A new owner who has not accepted it is not bound. The seller who failed to pass the clause on is then in breach of its own contract and may owe the agreed penalty.
Is a contract in perpetuity enforceable in the Netherlands?
In principle, yes. A contract for an indefinite period can even be non-terminable if that was the parties’ intention. A party can then, in certain circumstances, invoke reasonableness and fairness (Article 6:248(2)) or unforeseen circumstances (Article 6:258 Dutch Civil Code) (Supreme Court 2 February 2018, ECLI:NL:HR:2018:141).
What happens if a perpetual clause is breached?
The other party can claim performance and, if the breach can be attributed to the party in breach, damages; unless performance is already permanently impossible, the party in breach must first be in default (Article 6:74 Dutch Civil Code). If a penalty was agreed, the penalty as a rule replaces statutory damages (Article 6:92(2); at the creditor’s request the court can award additional damages if fairness clearly requires this, Article 6:94(2)), and it cannot be claimed for a breach that cannot be attributed to the debtor (Article 6:92(2) and (3)). The court can reduce a penalty only if fairness clearly requires this (Article 6:94(1)). A claim for damages or for payment of a penalty is time-barred five years after the start of the day following the day on which the injured party became aware of both the damage or the penalty being due and the person liable, and in any event twenty years after the event (Article 3:310(1) Dutch Civil Code).
Primary sources
- Dutch Civil Code (Burgerlijk Wetboek), Book 6: Articles 6:74, 6:91, 6:92, 6:94, 6:248, 6:252, 6:253, 6:254 and 6:258
- Dutch Civil Code, Book 3: Article 3:310
- Dutch Civil Code, Book 5: Articles 5:70 and 5:71
- Supreme Court (Hoge Raad) 13 March 1981, ECLI:NL:HR:1981:AG4158 (Haviltex, interpretation of contracts)
- Supreme Court 28 October 2011, ECLI:NL:HR:2011:BQ9854 (termination of a contract for an indefinite period)
- Supreme Court 2 February 2018, ECLI:NL:HR:2018:141 (termination of a patent licence agreement; non-terminable contracts)
Do you need advice on a perpetual clause?
Do you have questions or a dispute about a perpetual clause under Dutch law, or do you need advice on contract law in the Netherlands? Our Dutch contract lawyers can help you.
